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2 September 2009 • 7:00 am

Perception Is Reality: Why Subjective Measures Matter, and How to Maximize Their Impact – Part I

This series of posts (in three parts) is adapted from an article of the same name that appeared in Harvard Business Publishing’s Balanced Scorecard Report in 2006.

When helping organizations design measures for their change programs, the moment comes when I float the idea of surveying employees or customers. Invariably, there is an uncomfortable silence, followed by protests that surveys are expensive, that they don’t tell them anything new, and that a steady diet of them annoys people and thus defeat their purpose. An unspoken source of resistance is leaders’ fear that survey results will challenge the comfortable fictions they may be sustaining to support their decisions.

True, surveys can be expensive, especially for professional research design and administration. But in the past decade, technology has gone a long way in offsetting their cost and complexity.

Customer and employee expectations and perceptions all matter to a company. Understanding them is vital to predicting the behaviors of these stakeholders: whether they’ll invest in your shares or buy your products or work hard. When done properly, surveys are essential for developing a balanced portfolio of leading and lagging indicators. And when survey results inform key management decisions that involve making large investments in pursuit of even larger revenues, the value can be substantial. But in the absence of clear-cut results, surveys may raise more questions than they answer.

Perception Matters

Understanding, shaping, and fulfilling the expectations of stakeholders is central to successful strategy execution. In for-profit organizations, strategy is rooted in the need to satisfy shareholders’ expectation of a return on their investment. The decision to invest (and, by implication, the stock price) is driven by investors’ collective expectations of the firm’s future performance. Customers’ perception of the value proposition predicts his or her behavior toward the firm, namely, whether he or she buys its products. Value, like beauty, is in the eye of the beholder. While executives may envision what the value proposition should be, it is customer perception that determines what the value proposition actually is. The concept of the customer value proposition applies to the firm’s internal customers as well. In my work with IT organizations, I’ve learned that expectations and perceptions shape behaviors that influence the quality of these internal service provider-customer partnerships—and ultimately, how efficiently the resources that drive enterprise performance and strategy execution are used.

Of course, human capital is a key intangible asset necessary for creating value. A company can influence, but not control employees’ expectations and perceptions of the firm. These factors largely drive their behavior: how hard they work, how well their actions support the firm’s interests, and ultimately whether they’ll continue working for the firm.

Perception drives behavior; that’s why the behavior of these stakeholders is indeed the firm’s reality. Woe unto the firm that doesn’t understand what its investors, customers, and employees are thinking.

Next: Ensuring Survey Success

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